New settlements in the West Bank are often heatedly discussed in Dubai. But at the emirate’s showcase real estate event Cityscape Global, it was Palestinian, not Jewish building that was on the tips of tongues.

Rawabi, a controversial housing project billed as Palestine’s first planned city, was this week being sold to Palestinian investors in the Gulf.

The project, which is being developed by Bayti Real Estate and first announced some five years ago, has stalled in recent months due to a dispute over whether Israel will provide water to the more than 700 houses that have already been built, sold and are ready for delivery, according to Shadi Qawasmi, the marketing manager for Rawabi. Those issues are soon to be resolved, he said.

“We have cities in Palestine, but they are all ancient cities,” Mr. Qawasmi said. “They lack what a modern city must have.”

Rawabi is eventually planned to become a town of 26 neighborhoods of 5,000 homes, schools, a business center, medical centers and mosques, all of which is expected to cost about $1 billion. The city aims to be a modern metropolis, complete with retail walks, lush green trails, sport pitches and a Roman-style amphitheater.

Lying 9 kilometers north of Ramallah, the project has so far largely been funded by real estate investment company Qatari Diar, owned by Qatar’s sovereign wealth fund, and through part sales of properties. It is the brainchild of entrepreneur Bashar Masri, the chief executive of Massar international, a part investor in the development.

But Rawabi faces many challenges, not least convincing the Palestinian diaspora to park their cash in a development influenced by Israeli decisions.